DFS slashes FY guidance amid Red Sea disruption and weak demand

DFS has downgraded its full-year guidance amid “challenging” consumer demand and ongoing disruption issues in the Red Sea, which have caused delivery delays and higher freight costs. In its latest update, the company said it now expects profit-before-tax to be in the range of £10m to £12m in the full-year, down from a previous guidance of £20m to £25m. 

In addition, full-year revenues are now expected to be between £995m and £1bn, down from previous expectations of £1bn to £1.015bn.

This lowered guidance was driven by multiple issues, including a lower level of delivered customer orders, with £12-14m of delayed deliveries from the Red Sea disruption. Those deliveries are now expected to move into FY25. 

The group was also hit by higher shipping costs as a result of freight rates increasing above previous expectations in Q4. 

Meanwhile, the upholstery market  was “weak” over the period, which was only partially mitigated by investments to stimulate order volumes in the last quarter. According to DFS, consumer demand in the upholstery sector has fallen by around 10% in volume terms year-on year from a weak starting point, bringing overall market demand levels to record lows. 

Nonetheless, the group said it has continued to operate through the period with a “record” value market share of over 38.5%.

The group said it has also been encouraged by an improving trend in order intake, which rose by 9% in its fourth quarter. The recent improvement comes as it annualised weaker prior year comparatives, and also follows initiatives to strengthen the product ranging and pricing in Sofology.

DFS said: “Whilst the economic outlook remains hard to predict we expect the widely predicted lower inflation and interest rate environment to have a positive impact on upholstery market demand levels with the declines experienced across the last three years starting to reverse and the market slowly recovering in our FY25 period.”